The wholesale shift of production resources

The dragon of Chinese folklore is not your regular household pet. You can neither ignore it nor put it on your lap. To prevent the dragon from devouring their children on New Year's eve, the ancient Chinese, as the tale goes, fed it a sweet, sticky mixture that kept its jaws stuck together.

You've got to wonder exactly what the electronics industry is feeding China these days and what it expects to happen. Desperate to keep costs down, OEMs and EMS providers are relocating plants from North America and Europe to low-cost Asian locations, principally

to China. Japan's top-tier OEMs, many of which once resisted taking tough cost-control actions implemented by rivals elsewhere, are shutting down plants at home and abroad, again in favor of China. And with good reason, component makers are establishing China plants in a bid to reclaim sales being lost to Chinese rivals.

Don't assume it will end there. China is a hungry economy and the ruthlessness of the capitalist system that the country is putting into place dictates that manufacturers make the most of its low-cost option: land and cheap labor. Furthermore, the country's potential as a huge market makes it an irresistible draw for foreign companies suffering from what has been billed as the worst downturn in the electronics industry's history. In the semiconductor arena, China aims to be a major design center. With the help of foreign companies, China is adding chip plants and hoping the West will lift the embargo imposed on the transfer of high-end chip manufacturing equipment.

But China is not your typical capitalist economy. It is a socialist country dabbling in capitalism. The very unpredictability of this mixture should be a cause for concern.

If well managed, China's increasing role can contribute to the electronics industry's growth, but to pretend that the wholesale shift of production resources to the country doesn't pose a risk is alarmingly myopic. Many in the industry say they recognize this but appear resigned, unable to come up with a different strategy.

"China is exciting, but it should concern all of us that the process technology roadmap will now be headquartered in Beijing," said an industry executive whose company is relocating its IC test and assembly to China. "Everybody should be very concerned about this thing called China."

The electronics industry should take advantage of China's strengths, but it also needs to be reminded that transferring the core of its production system to a single country and especially one in the midst of a difficult and unpredictable transition is asking for trouble. China's dragon may look attractive but it's also got fire in its belly.